When planning for the purchase of your first home, there’s a lot to be excited about! As you prepare for your future, it’s important to remember the big picture of what you’re committing to: owning a home involves more than just making a mortgage payment. For inexperienced homeowners, you might be surprised to learn that some of those additional costs happen long before you get the chance to move in. While you might be prepared and saving for a down payment, there are other expenses you’ll need to be aware of. While the national average of closing costs traditionally ranges between 2 and 4% of the purchase price, it is becoming more common to see closing costs in the 3-6% range. For that reason, you’ll want to do a little extra research to get more specific estimates for your area and current market. Don’t let not-knowing stand in the way of making your dream of home ownership come true!
- Down Payment Costs
Everyone is familiar with the concept of making a down payment, but many aren’t aware just how many factors go in to calculating the required down payment, depending on the type of loan you’re taking. When it comes to setting aside the funds for a down payment, the best advice is to start saving early! While your choice of lender will impact the amount you need to save, a general guideline is between 5-20% of the home value.
- Appraisal Fees
Depending on the terms and conditions of your purchase, you might be responsible for covering appraisal fees. Some lenders will require an appraisal before approving the mortgage for the sale price of the home.
- Home Inspection Fees
When it comes to making a purchase, a home inspection is there to protect you from buying a property in need of immediate repairs. While you may have to pay the bill for a home inspection (and remember, it pays to find and hire a qualified professional), you may be able to negotiate with the sellers, should the home need any work.
- Escrow Fees
One of the largest sources of closing costs are the escrow fees associated with closing the purchase. Not familiar with escrow fees? You can easily read more here. Prices typically range between 1-2% of the total purchase price, but will depend on which real estate professionals you’re working with.
- Title Search and Filing Fees
Title fees are mostly related to document and filing services, and while only a small percentage of your closing costs, they can add up. During this process, the financial history of the property will be checked to make sure there are no unforeseen issues (such as a lien) that may prevent the sale.
- Loan Costs and “Points”
When financing your loan, you may be able to purchase “points”. Each point costs 1% of the purchase price, and is an upfront fee to reduce the loan interest rate- meaning you pay less in the long term. This is also a commission for your lending officer, and is typically optional, with different lenders offering different incentives.
- Other Assorted Fees
Credit reports, courier and postage fees, and any additional time spend with a real estate attorney can all become part of your closing costs.
When you find your dream home, you won’t want to find yourself looking for change under the couch cushions in order to cover the associated fees with making the purchase. Know what you’re in for now, and you can start planning well in advance! Any money you save now, can always be put towards other expenses, should closing costs be less than you initially anticipated- or better yet, could be used to purchase points and help lower your loan’s interest rate. For a motivated buyer, being prepared for closing costs is one of the best moves you can make! Don’t let unexpected costs surprise you.
